Equating government spending and government deficits as co-equal culprits in threatening our economic well-being is a popular refrain, one that has been repeated for decades. Repetition may be a good thing in many circumstances, but this is not one of them.

The simple truth is government deficits are a symptom of a much larger problem — and they are a secondary consideration. The real issue is the total amount of current and future private income and wealth that is going to be committed to government spending. It is the reduction and displacement of private consumption and private investment in the private sector by total government spending which needs to be the focus.

Why the bias in favor of the private sector? There are a variety of reasons:

2. The private sector, when it operates in an overall system with few restrictions on the price mechanism, allocates resources to meet consumer demands. The price mechanism means the best coordination device is in play to ensure demand and supply equal one another.

3. With the exception of bailouts and subsidies (which ironically come from the government), the private sector is governed by profit and loss. The focus on profits is only half the story. Losses, too, are equally important in the process of making sure resources (time, knowledge, material, etc.) are not wasted.

4. Private funds, savings, and investment finance an increase in productive wealth to citizens and the economy. These increases come in the form of dividends, wages, profits, and interest payments and they directly make both individuals and the economy better off than before because there is a larger amount of income producing wealth.

Still, can government spending be used in ways to increase national income and wealth? In theory, and even though the public sector does not share the attributes of the private sector noted above, the answer is yes. However, in practice, our particular experience with federal spending in the past 50 years shows a decided bias against public investment and toward entitlements and public consumption. This is clear when mandatory federal spending, which targets consumption, in Fiscal Year 2011 is projected by the White House budget director to exceed total federal receipts (see Table S-4).

The argument presented above has implications for how government spending is financed — debt or taxes. If displacing private sector wealth and income with government spending is the most important consideration, then not only is the financing method less important than commonly thought, but balancing the federal budget is open to question as well.

“4) a thriving capitalist system has proven over and over to be the most dynamic method to create prosperity.”

Can you explain the 10% annual growth in communist China, the second largest economy in the world, projected by the World Bank to be larger than the U.S. economy in 9 years?

How is it that Singapore and Norway have higher per capita income than the U.S.?

And I would once again state that “prosperity” should be defined by more than income and wealth. For example, eliminating Social Security and Medicare entirely might increase average annual real GDP growth in the U.S. by 0.10% or something like that, but I do not think that our society could be judged more prosperous as the poverty, sickness, and mortality rate of the elderly skyrocketed.